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U.S. Dollar Index Climbs to Four-Month High

By:
James Hyerczyk
Published: Apr 24, 2018, 04:06 UTC

Fear of accelerating inflation, rising commodity prices and worries about the growing supply of government debt helped drive the 10-year yield to 2.998 on Monday.

U.S. Dollar Index

The U.S. Dollar jumped to a four-month high against a basket of major currencies on Monday as the benchmark 10-year U.S. Treasury yield rose to just under the psychologically important 3 percent level.

June U.S. Dollar Index futures settled at 90.705, up 0.630 or +0.70%.

U.S. Dollar Index
Daily June U.S. Dollar Index

Fear of accelerating inflation, rising commodity prices and worries about the growing supply of government debt helped drive the 10-year yield to 2.998 on Monday. This helped make the U.S. Dollar a more attractive investment while pressuring the Euro, Japanese Yen and other major currencies.

Strong demand for the Greenback also reflected an improved outlook on trade. Over the week-end, U.S. Treasury Secretary Steven Mnuchin said he may travel to China, a development that could ease tensions between the world’s two largest economies. Diminished tension over a potential trade war between the United States and China also made the dollar more attractive than its European and Japanese counter-part.

U.S. Treasury Markets

U.S. Treasury yields jumped at the start of the week on signs of increasing inflation and as the Federal Reserve signaled more rate increases are to come this year. The 10-year Treasury yield stopped short of the psychological 3 percent level with some investors believing this may be the top until the government reports on first-quarter GDP on Friday.

The Fed funds futures market gave almost a 50 percent probability that the central bank would move one more time in December as of Monday morning. The CME’s FedWatch tool, a reliable gauge for the Federal Open Market Committee’s actions, assigned a probability of 48.2 percent.

U.S. Economic Reports

There were three U.S. economic reports released on Monday.

U.S. home sales increased for a second straight month in March amid a rebound in activity in the Northeast and Midwest regions, but a dearth of houses on the market and higher prices remain headwinds as the spring selling season kicks off.

The National Association of Realtors said on Monday that existing home sales rose 1.1 percent to a seasonally adjusted annual rate of 5.60 million units last month. The market for previously owned homes accounts for about 90 percent of U.S. home sales. Sales fell 1.2 percent year-on-year in March.

Additionally, a survey on Monday from data firm HIS Markit showed strong manufacturing and services business activity in early April, driven by robust growth in new orders and rising prices.

The seasonally adjusted HIS Market Flash U.S. Composite PMI Output Index rose to a reading of 54.8 this month from 54.2 in March, indicating a faster upturn in business activity across the private sector. Flash Services PMI rose slightly higher to 54.4 from 54.3.

Comex Gold
Daily June Comex Gold

Gold

Gold prices hit a two-week low as investors leaped into the U.S. Dollar, attracted by rising Treasury yields. Since dollar-denominated gold does not pay a dividend or interest, investors tend to sell it during periods of rising interest rates. The opportunity cost of holding gold will increase, for example, if the 10-year U.S. Treasury Note rises above the psychological 3 percent level for the first time in 5 years.

WTI Crude Oil
June West Texas Intermediate Crude Oil

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil recovered from early losses to post a small gain on Monday. Earlier in the session, prices were pressured after Iran’s oil minister said OPEC would not extend its production cap pact if high crude oil prices continued.

Natural Gas
Daily June Natural Gas

Natural Gas

Natural gas prices posted a two-sided trade on Monday as investors continued to assess the impact of a delayed injection season and strong production. The price action suggests that investors seem to think cash prices may remain fairly firm through the shoulder season following a couple of rare tighter than expected U.S. Energy Information Administration storage reports the first two weeks of April.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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